Strategy and Diversification

Lewis Group’s strategy is to offer exclusive merchandise to customers across all market segments and income groups in Southern Africa, focusing on the retailing of furniture, home appliances, electronic goods and homewares on credit and cash.

Diversification strategy

The group adopted a strategy to diversify the business and reduce the reliance on credit sales. In 2014, the group acquired the Beares brand with a focus on a higher target market and a higher proportion of cash sales than the traditional retail brands. Beares currently trades out of 127 stores.

In 2017, through acquisition, the group doubled its store base outside of South Africa to 116 stores in Botswana, Lesotho, Eswatini and Namibia. Stores outside South Africa now account for 14.9% of the group’s revenue.

The acquisition of cash retailer United Furniture Outlets (UFO) in 2018 enabled the group to target a higher income customer market and increase cash sales. UFO contributed 14.4% of total group sales in the reporting period, increasing the cash: credit sales mix to 43.1%: 56.9%.

Medium-term growth strategies are developed by executive management and reviewed and approved by the board. These growth strategies are developed by considering internal and external factors, risks and opportunities, resources and relationships, and key interdependencies. The strategy is further supported by detailed business plans and budgets, information technology solutions, human capital requirements and operational policies and procedures.

Material issues and risks that could impact on the group’s strategy, its stakeholders and its ability to sustain growth are reviewed on a continuous basis as part of the strategic planning process (refer to Material issues and risks report on pages 14 to 17). Action plans are developed to achieve the strategic objectives and also to manage the material impacts on the group.

Material impacts, performance indicators and targets
      Targets
Strategic focus area Performance indicators Achieved
2019
2019 2020 Medium- term
Merchandising
and supply chain
Gross profit margin (%) 41.2 38 – 42 38 – 42 40 – 43
Credit
management
Debtor costs
as a percentage
of net debtors
13.3 15 – 18 13 – 17 13 – 16
Satisfactory paid customers(%) 71.4 67 – 70 70 – 72 70 – 72
Execution of
business model
Operating profit margin(%) 7.2 5 – 10 7 – 10 10 – 15
Credit sales as a
percentage of total sales
57.9 56 – 60 56 – 60 56 – 60
Increase in operating costs
(excluding debtor costs)
       
– Traditional retail 7.2 3 – 5    
– Group 13.7 13 – 15 6 – 8 5 – 7
Capital
management
Gearing (%) Ungeared Ungeared Ungeared Less than 25